KazMunayGas published its financial results for the second quarter of 2025. Overall, the report can be described as moderately positive. Revenue posted an increase despite lower oil prices, although this was mainly in tenge terms. At the same time, the company’s operating margin improved significantly. Free cash flow rose compared with the previous quarter and remained at a high level. As a result, net income increased sharply, while leverage continued to decline even after the recent dividend payout. In our valuation model, we upgraded KazMunayGas’s operating margin, raised the forecast exchange rate of the tenge against the US dollar, and updated the individual valuation models for TCO and CPC. On the other hand, WACC was raised in line with higher government bond yields. Following these adjustments, our revised target price for KazMunayGas shares is KZT 23,100, which implies a 17% upside potential from the current market price. Our recommendation is therefore “Buy.”
(+) Revenue growth despite weaker oil prices. KazMunayGas generated KZT 2.3 trillion in revenue in 2Q25, up 12% YoY and 0.8% QoQ. Annual revenue from crude oil sales declined by 6.1%, but this was more than offset by a 51% YoY increase in petroleum product sales, driven by an 85% YoY rise in throughput volumes at the Romanian refineries following last year’s shutdowns and repairs. On a quarterly basis, revenue growth was largely supported by a 16% increase in petroleum product sales. Although crude oil production and sales rose nearly 12% YoY, revenues from crude sales declined since most of the increase came from TCO, whose results are not consolidated. Output levels at operating assets and at Kashagan were largely unchanged. Given that the tenge price of Brent fell 7.8% YoY and 9.7% QoQ, crude oil revenues were under pressure. The share of income from joint ventures increased by 43% YoY but fell by 12% QoQ. This growth was mainly driven by TCO, where quarterly production rose 47% YoY and 7.7% QoQ, while net income increased 30% YoY. Stronger profitability was also observed at MMG and CPC. Including other income, KazMunayGas’s total revenue reached KZT 2.5 trillion (+11% YoY and +1.5% QoQ).
(+) Improved margins and sharp growth in net profit. Net operating expenses in 2Q25 rose 9.1% YoY but fell 4.6% QoQ. The quarterly decline was mostly due to FX gains. Adjusted for FX, expenses were nearly unchanged QoQ. On an annual basis, the increase was mainly driven by higher costs of purchased crude and petroleum products (+13% YoY) and production expenses (+28% YoY). At the same time, tax expenses fell 22% YoY due to lower oil prices, while G&A costs dropped 32% YoY. As a result, operating profit reached KZT 422 billion (+23% YoY and +48% QoQ). Adjusted EBITDA grew 25% YoY and 28% QoQ to KZT 710 billion, with the EBITDA margin improving from 23% in 1Q25 (25% in 2Q24) to 28%. Growth in EBITDA was also supported by higher dividends from joint ventures, which paid KZT 318 billion in 2Q25 (+25% YoY). Net income attributable to KMG shareholders came in at KZT 339 billion (+32% YoY and +73% QoQ), or KZT 556 per share. Free cash flow reached KZT 399 billion (-13% YoY and +41% QoQ). The YoY decline was primarily due to a sharp reduction in receivables in the prior year. Net debt decreased 10% QoQ and 39% YoY. The net debt-to-EBITDA ratio fell furtherfrom 0.52x to 0.45x, a new record low for at least the past decade.
Our opinion and valuation model changes. We assess KazMunayGas’s financial report as moderately positive, especially given the stagnation in oil prices. While revenue growth would have been negative without the weaker tenge, adjusted EBITDA, margins, and free cash flow all posted significant increases, largely supported by higher dividends from joint ventures. Meanwhile, leverage continues to decline to multi-year record lows. In our valuation model, the most important change was the improvement in the TCO valuation following its FY2024 financial results. We also revised upward KazMunayGas’s standalone operating margins, reflecting the recent trend of stronger profitability. Our oil price forecasts remain unchanged at USD 70 for the second half of the year. Another key factor was the higher USD/KZT exchange rate, which boosted the company’s tenge-based valuation and increased our longer-term FX assumptions. On the downside, higher government bond yields in Kazakhstan pushed WACC up by 20 bps. In addition, we lowered our valuation of CPC after the company released its FY2024 results. Taken together, these adjustments led to an upward revision of our target price for KazMunayGas shares to KZT 23,100, implying 17% upside potential. Our recommendation remains “Buy.”